The Non-Optimality of Optimal Trade Policy: The U.S. Automobile Indust ry Revisited, 1979-1985
We examine the sensitivity of simple calibration models of trade in
imperfectly competitive industries to changes in model specification, as well
as to changes in the calibration parameters. We find that not just the
magnitude, but also the sign of the optimal trade policies is very sensitive to
the change in model specification. Indeed, use of policies derived from the
'wrong' model can reduce welfare from the status quo. However, the welfare
gains to be obtained from application of the 'correct' model remain limited.
Calibration models nonetheless provide useful estimates of firm and market
behavior over time, as well qs disaggregated elasticities of demand. We
conclude that careful empirical work is necessary to guide model selection.
For the present, the case for activist trade policy on the basis of calibration
models should not be made.
In order to set up a list of libraries that you have access to,
you must first login
or sign up.
Then set up a personal list of libraries from your profile page by
clicking on your user name at the top right of any screen.